Interest rate changes what exactly?

[David H]

Since recent interest rate changes the banks have been free to set them independently from whatever the Bank of England rate is.

So what actually has to change when it does as nothing in the market seems to follow it?

[buildersmate]

Really?
Northern Rock just emailed me today to let me know that the rate on my savings accound would be going down by 0.6% gross from 1 November.
The aggro is banks tend to lag behind the announcement by a bit. Mortgages got cheaper from them too.

[David H]

Ah yes, but that is just a recommendation, a direction the are pointed in but follow less and less. And of course, they drop the margin so the investors have less but the borrowers spend the same and sometimes even more.

That's a very good example of what I meant as they chose to do it rather than anyone I've come across changing it instantly. It must apply to someone but yet to find out who.

[kempie]

The base rate is the rate at which the Bank of England lends to other financial institutions. None of these institutions has ever been required to adjust their own lending rates in line with the changes to the base rate (it is pretty much a guideline only) - they do so to remain competitive. However the lack of confidence currently exhibited by banks far outweighs any spirit of competition they might have in the loans department.

[BenDToy]

If you have a "tracker" loan then it will follow the base rate automatically. You sound reasonably intelligent so I won't labour that point. Anything else is at the discretion of the lender. Their SVR (standard variable rate) is not linked to the BoE base rate and current levels are typically around 7%, although the base rate is 4.5%.

[chazza]

Does the amount of interest that you earn on savings not change (for the worse) whenever the interest rate drops?

[David H]

Thanks Kempie, I think that explains it. Dropping savings rates is still optional but much quicker to respond as it saves them money. Great incentive for savers...